Energy
has been universally recognized as one of the most important inputs for
economic growth and human development. There is a strong two-way relationship
between economic development and energy consumption. On one hand, growth of an
economy, with its global competitiveness, hinges on the availability of
cost-effective and environmentally benign energy sources, and on the other
hand, the level of economic development has been observed to be reliant on the
energy demand. Energy
intensity (Table E.1g) is an indicator to show how efficiently
energy is used in the economy. The energy intensity of India is
over twice that of the matured economies, which are represented
by the OECD (Organization of Economic Co-operation and Development)
member countries. India’s energy intensity is also much higher than
the emerging economies—the Asian countries, which include the ASEAN
member countries as well as China. However, since 1999, India’s
energy intensity has been decreasing and is expected to continue
to decrease. The indicator of energy–GDP (gross domestic product)
elasticity, that is, the ratio of growth rate of energy to the growth rate GDP,
captures both the structure of the economy as well as the efficiency. The
energy–GDP elasticity during 1953–2001 has been above unity. However, the
elasticity for primary commercial energy consumption for 1991–2000 was less
than unity (Planning Commission 2002). This could be attributed to several
factors, some of them being demographic shifts from rural to urban areas,
structural economic changes towards lesser energy industry, impressive growth
of services, improvement in efficiency of energy use, and inter-fuel
substitution. The energy sector in India has been receiving high
priority in the planning process. The total outlay on energy in the Tenth
Five-year Plan has been projected to be 4.03 trillion rupees at 2001/02 prices,
which is 26.7% of the total outlay. An increase of 84.2% is projected over the
Ninth Five-year Plan in terms of the total plan outlay on energy sector. The
Government of India in the mid-term review of the Tenth Plan recognized the
fact that under-performance of the energy sector can be a major constraint in
delivering a growth rate of 8% GDP during the plan period. It has, therefore,
called for acceleration of the reforms process and adoption of an integrated
energy policy. In the recent years, the government has rightly recognized
the energy security concerns of the nation and more importance is being placed
on energy independence. On the eve of the 59th Independence Day (on 14 August
2005), the President of India emphasized that energy independence has to be the
nation’s first and highest priority, and India must be determined to achieve
this within the next 25 years.

Demand and supply scenario
In the recent years, India’s energy consumption has been increasing at one of
the fastest rates in the world due to population growth and economic
development. Primary commercial energy demand grew at the rate of six per cent
between 1981 and 2001 (Planning Commission 2002). India ranks fifth in the
world in terms of primary
energy consumption (Table E.1), accounting for about 3.5% of the world
commercial energy demand in the year 2003. Despite the overall increase in
energy demand, per capita energy
consumption (Table E.1c) in India is still very low compared to other
developing countries.

India is well-endowed with both exhaustible and renewable
energy resources. Coal, oil, and natural gas are the three primary commercial
energy sources. India’s energy policy, till the end of the 1980s, was mainly
based on availability of indigenous resources. Coal was by far the largest
source of energy. However, India’s primary energy mix has been changing over a
period of time.

Despite increasing dependency on commercial fuels, a sizeable quantum of energy
requirements (40% of total energy requirement), especially in the rural
household sector, is met by non-commercial energy sources, which include
fuelwood, crop residue, and animal waste, including human and draught animal
power. However, other forms of commercial energy of a much higher quality and
efficiency are steadily replacing the traditional energy resources being
consumed in the rural sector.
Resource augmentation and growth in energy supply has not kept pace with
increasing demand and, therefore, India continues to face serious energy
shortages. This has led to increased reliance on imports to meet the energy
demand.

Coal
India now ranks third amongst the coal
producing countries in the world. Being the most abundant fossil fuel in India
till date, it continues to be one of the most important sources for meeting the
domestic energy needs. It accounts for 55% of the country’s total energy
supplies.
Through sustained increase in investment, production of coal increased from
about 70 MT (million tonnes) (MoC 2005) in early 1970s to 382 MT in 2004/05.
Most of the coal production in India comes from open pit mines contributing to
over 81% of the total production while underground mining accounts for rest of
the national output (MoC 2005). Despite this increase in production, the
existing demand exceeds the supply. India currently faces coal shortage of
23.96 MT. This shortage is likely to be met through imports mainly by steel,
power, and cement sector (MoC 2005). India exports insignificant quantity of
coal to the neighbouring countries. The traditional buyers of Indian coal are
Bangladesh, Bhutan, and Nepal.
The development of core infrastructure sectors like power, steel, and cement
are dependent on coal. About 75% of the coal in the country is consumed in the
power sector (MoC 2005).

Power
Access to affordable and reliable electricity is critical to a country’s growth
and prosperity. The country has made significant progress towards the
augmentation of its power infrastructure. In absolute terms, the installed power
capacity has increased from only 1713 MW (megawatts) as on 31 December 1950
to 118 419 MW as on March 2005 (CEA 2005). The all India
gross electricity generation, excluding that from the captive generating
plants, was 5107 GWh (gigawatt-hours) in 1950 and increased to 565 102 GWh in
2003/04 (CEA 2005).
Energy requirement increased from 390 BkWh (billion kilowatt-hours) during
1995/96 to 591 BkWh (energy) by the year 2004/05, and peak demand increased
from 61 GW (gigawatts) to 88 GW over the same time period. The country
experienced energy shortage of 7.3% and peak shortage of 11.7% during 2003/04.
Though, the growth in electricity
consumption over the past decade has been slower than the GDP’s growth,
this increase could be due to high growth of the service sector and efficient
use of electricity.
Per capita electricity consumption rose from merely 15.6 kWh (kilowatt-hours)
in 1950 to 592 kWh in 2003/04 (CEA 2005). However, it is a matter of concern
that per capita consumption of electricity is among the lowest in the world.
Moreover, poor quality of power supply and frequent power cuts and shortages
impose a heavy burden on India’s fast-growing trade and industry.

Oil and natural gas
The latest estimates indicate that India has around 0.4% of the world’s proven
reserves of crude oil. The production of crude oil in the country has increased
from 6.82 MT in 1970/71 to 33.38 MT in 2003/04 (MoPNG 2004b). The production of
natural gas increased from 1.4 BCM (billion cubic metres) to 31.96 BCM during
the same period. The quantity of crude oil imported increased from 11.66 MT
during 1970/71 to 81 MT by 2003/04. Besides, imports of other petroleum
products increased from 1 MT to 7.3 MT during the same period. The exports of
petroleum products went up from around 0.5 MT during 1970/71 to 14 MT by
2003/04. The refining capacity, as on 1 April 2004, was 125.97 MTPA (million
tonnes per annum). The production of petroleum products increased from 5.7 MT
during 1970/71 to 110 MT in 2003/04.
India’s consumption of natural gas has risen faster than any other fuel in the
recent years. Natural gas demand has been growing at the rate of about 6.5%
during the last 10 years. Industries such as power generation, fertilizer, and
petrochemical production are shifting towards natural gas. India’s natural gas
consumption has been met entirely through domestic production in the past.
However, in the last 4/5 years, there has been a huge unmet demand of natural
gas in the country, mainly required for the core sectors of the economy. To
bridge this gap, apart from encouraging domestic production, the import of LNG
(liquefied natural gas) is being considered as one of the possible solutions
for India’s expected gas shortages. Several LNG terminals have been planned in
the country. Two LNG terminals have already been commissioned: (1) Petronet LNG
Terminal of 5 MTPA (million tonnes per annum) at Dahej, and (2) LNG import
terminal at Hazira. In addition, an in-principle agreement has been reached
with Iran for import of 5 MTPA of LNG.

Renewable energy sources
Renewable energy sources offer viable option to address the energy security
concerns of a country. Today, India has one of the highest potentials for the
effective use of renewable energy. India is the world’s fifth largest producer
of wind power after Denmark, Germany, Spain, and the USA. There is a
significant potential in India for generation of power from renewable energy
sources—, small hydro, biomass, and solar energy. The country has an estimated
SHP (small-hydro power) potential of about 15 000 MW. Installed combined
electricity generation capacity of hydro and wind has increased from 19 194 MW
in 1991/92 to 31 995 MW in 2003/04, with a compound growth rate of 4.35% during
this period (MoF 2005). Other renewable energy technologies, including solar
photovoltaic, solar thermal, small hydro, and biomass power are also spreading.
Greater reliance on renewable energy sources offers enormous economic, social,
and environmental benefits.
The potential for power production from captive and field-based biomass
resources, using technologies for distributed power generation, is currently
assessed at 19 500 MW including 3500 MW of exportable surplus power from
bagasse-based cogeneration in sugar mills (MNES 2005).

Future
scenario
Increasing pressure of population and increasing use of energy in different
sectors of the economy is an area of concern for India. With a targeted GDP
growth rate of 8% during the Tenth Five-year Plan, the energy demand is expected
to grow at 5.2%. Driven by the rising population, expanding economy, and a quest
for improved quality of life, the total primary energy consumption is expected
to about 412 MTOE (million tonnes oil equivalent) and 554 MTOE in the terminal
years of the Tenth and Eleventh Plans, respectively (Planning Commission 1999).
The International
Energy Outlook 2005 (EIA 2005b) projects India’s gas consumption to grow
at an average annual rate of 5.1%, thereby reaching 2.8 trillion cubic feet
by 2025 with the share of electric power sector being of 71% by that time. Coal
consumption is expected to increase to 315 MT over the forecast period. In India,
slightly less than 60% of the projected growth in coal consumption is attributed
to the increased demand of coal in the electricity sector while the industrial
sector accounts for most of the remaining increase. The use of coal for electricity
generation in India is expected to increase by 2.2% per annum during 2002–25,
thus requiring an additional 59 000 MW of coal-fired capacity. Oil demand in
India is expected to increase by 3.5% per annum during the same time.

It is quite apparent that coal will continue to be the predominant form of energy
in future. However, imports of petroleum and gas would continue to increase
substantially in absolute terms, involving a large energy import bill. There
is, therefore, an urgent need to conserve energy and reduce energy
requirements by demand-side management and by adopting more efficient technologies
in all sectors.